Mayville Engineering Company, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Team execution led to 12% sequential sales growth, margin expansion, and positive free cash flow despite softer customer demand and inventory destocking. MBX framework culture contributed 140 basis points in sequential adjusted EBITDA margin improvement.
• Maintaining full year guidance driven by strong YTD execution and stronger than expected demand in less cyclical military and other end markets. Closely monitoring evolving regulatory and macroeconomic environment.
• Domestic footprint benefits from OEM re-shoring activity; engaged with numerous new and existing customers exploring supply chain repositioning. Substantial new business wins in commercial vehicle, axis customer, aluminum extrusions, and powersports.
• Working capital efficiency generated $5.4 million free cash flow in Q1. Net leverage 1.4 times; plan to repurchase shares and pursue accretive acquisitions. Focus on debt repayment, share repurchases, and strategic acquisitions to create long-term value.

Segment Performance

• Commercial vehicle market: Represents approximately 38% of trailing 12-month revenues. Net sales in Q1 were $50.9 million, a decrease of 13.7% vs prior year. Outperformed broader commercial vehicle market by 300 basis points.
• Powersports market: Represents approximately 16% of trailing 12-month revenues. Decreased by 26.5% Y/Y in Q1, driven by inventory destocking and soft demand, partially offset by new project ramp-ups.
• Construction and access market: Represents approximately 15% of trailing 12-month revenues. Decreased 31.4% Y/Y in Q1 due to soft demand in non-residential and public infrastructure, but offset by new customer wins.
• Agricultural market: Represents approximately 8% of trailing 12-month revenues. Decreased 26.9% Y/Y in Q1, reflecting weakness in large and small agricultural markets and uncertainty from trade policy.
• Military and other end markets: Showed stronger than expected demand, contributing to overall positive outlook and part of the reason for maintaining full year guidance.

Guidance

• Maintaining 2025 financial guidance: net sales between $560 million and $590 million, adjusted EBITDA between $60 million and $66 million, and free cash flow between $43 million and $50 million.
• Commercial vehicle end market: expected sales decrease low-single digits. Construction and access market: flat to down low single digits. Powersports market: decrease mid single to low double digits. Agricultural market: down mid 20%. Military market: mid-teens increase. Other end markets: high-teens increase.
• Guidance doesn't reflect potential recessionary environment later in the year or commercial vehicle emissions rule changes. Have a playbook to navigate scenarios and preserve profitability.

Risks

• Soft customer demand and inventory destocking in segments like powersports and agriculture.
• Evolving regulatory and macroeconomic environment impacting demand, especially in the second half of the year.
• Uncertainty around trade policy and tariffs affecting agricultural and powersports markets, as well as potential impact of recession on commercial vehicle demand.

Question and Answer

• Q: Ross Sparenblek asks about end market cadence, tariffs, and reshoring A: Jag Reddy discusses CV market uptick in second half related to 2027 regulation changes and pre-buys. Talks about tariffs and reshoring opportunities, stating onboarding could start as soon as 3-4 months if tariff regime is structural by mid-year.
• Q: Ted Jackson asks about agriculture and powersports outlooks, commercial vehicle guidance A: Jag Reddy says agriculture revenue expected down mid-20s, powersports down mid-single to mid teens. Discusses CV guidance considering no recession in second half and not building in EPA regulation change impact. Rachele Lehr mentions playbook to navigate scenarios and control margins.
• Q: Natalia Bak asks about customer conversation tone, revenue mix, ag recovery timing A: Jag Reddy says customers in ag and powersports focused on destocking, but team is actively engaged. Talks about revenue mix with new business, including 2026/2027 startups. Says ag recovery expected gradual in 2026, watching farmer sentiment and trade policy.
• Q: Ross Sparenblek asks about new business progress, M&A priorities A: Jag Reddy updates new business booked at ~$35-40M by end of April, ahead of schedule. M&A priorities are diversification, accretive margin profile, and domestic geographic exposure within US.